RAINBOW VANIJYA PVT LTD.,NEW DELHI vs. ACIT, KOLKATA

So far as the first issue is concerned, the facts in brief are that the assessee filed the return of income on 24.03.2021, declaring loss of ₹1,97,88,455/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 29.06.2021, which was duly served upon the assessee. There were three reasons for selection of security as per the said notice, which are as under:-

Subsequently, notice u/s 142(1) of the Act was issued on 18.11.2021, which was duly complied with by the assessee on 10.12.2021, on 16.12.2021 and on 17.03.2022. Thereafter, after taking into account the evidences/ replies by the assessee, the ld. AO issued show cause notice on 25.08.2022, giving show cause as to why an addition of

The ld. AR submitted that the ld. AO as well as the ld. CIT (A) did not treat the sales as well as the loans given to be bogus and also accepted the sales to be genuine. Therefore, how the addition can be made at the rate of 1% of aggregate of purchases, sales and loans & advances by the ld. Assessing Officer. Similarly, the ld. AR submitted that the ld. CIT (A) has added the entire purchases without doubting and disbelieving the corresponding sales which is very ridiculous and unsustainable when the books of accounts of the assessee are audited u/s 44AB of the Act. The ld. AR submitted that the assessee has been doing its business in the earlier as well as in the subsequent years and this is for the first time that addition on this count has not been made and enhanced by the ld. Commissioner of Income-tax (Appeals).

The ld. AR submitted that the ld. AO has not done any independent enquiry to establish as to how the assessee’s transaction of purchases/ sales and loans were not genuine on the basis of material collected by him. The documents comprising conformations, purchase invoices, e-way bills, transport documents, GSTR-1, GSTR-3B and

So far as the addition of 1% on purchases/ sales are concerned, the ld. AR submitted that the same is not sustainable as the ld. AO has not rejected the books of accounts and without rejection how the books could be disbelieved which were audited under the Companies Act as well as under Section 44Ab of the Act. In defense of his argument the ld. AR relied on the decision of Hon'ble Delhi High Court in case of PCIT Vs. Forum Sales Pvt. Ltd. in & 863/2019 and the decision of the co-ordinate bench of Kolkata in case of M/S Vista Tie Up Pvt Ltd. ITA 2091/KOL/2025. Therefore, the ld. counsel prayed that the addition made at the rate of 1% is wrong and cannot be sustained.

So far as the enhancement of income by ld CIT(A) is concerned, the ld. AR argued that the same is bad in law as the decision of the Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex (India) Ltd. (supra), which is the very basis of ld. CIT(A) decision ,is not applicable to the assessee’s facts. Finally, the ld. AR prayed that the addition made by the ld. CIT (A) may kindly deleted by quashing the appellate order and directing the ld. AO as well to delete the addition.

The ld. DR on the other hand relied heavily on the orders of the authorities below by submitting that the assessee is a accommodation entry provider and submitted that the ld. CIT (A) besides sustaining the addition made by the ld. AO correctly enhanced the addition. The ld. AR submitted that the assessee is part of an organized racket operating in the market for providing accommodation entries and therefore, the ground raised by the assessee may kindly be dismissed.

After hearing the rival contentions and perusing the materials available on record, we find that the assessee is a ‘Pacca Arahitya’ and is engaged in purchase and sale of steel and other items, recording the transactions as its purchases/ sales in the books of account maintained. The assessee is directly supplying the material from sellers to buyers and also directly arranging the payments/remittances from buyers to the sellers/suppliers and in the process the assessee is charging profit at the rate of 1% in consideration. The books of accounts of the assessee were audited under the Companies Act as well as u/s 44AB of the Act. The assessee was duly maintaining the stock register as well as other records in the ordinary course. We note that during the assessment proceedings, furnished before the ld. AO the bills of purchase, sales invoices, e-way bills, other transport documents etc. and the ld. AO has accepted that assessee has genuinely shipped the materials to third parties, however, made addition at the rate of 1% of total of purchases/ “29 Admittedly, the addition of income as discussed in questions (B), (C) and (D) on estimate basis has been done without rejecting the books of account. In view of the aforesaid, we find that no substantial question of law arises in the present appeals." Further, the Court in the aforesaid case also held that "any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate justification, is arbitrary and may lead to an incomplete, unreasonable and erroneous computation of income of an assessee."”

Similarly, the co-ordinate Bench has decided the issue in favour of the assessee by holding that the addition cannot be made on estimation basis without rejecting the books of account in the case of vista Tie Up Pvt. Ltd. Vs. ITO in wherein the co-ordinate bench has held as under:-

So far as the enhancement of addition is concerned, we find that the ld. CIT (A) without bringing any material on record or doing any further enquiry added the entire purchases by relying on the decision of Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex Ltd.v(Supra). We have perused the above decision of the Hon'ble Bombay High Court and find that the said decision is distinguishable on facts. We observe that in the case before the Hon'ble Bombay High Court, the respondent assessee has not made any “9. Ax could be seen from the above for the AY 2019-20 the assessee purchased cement worth Rs. 1.61.71.338/- from R.R. Associates and these purchases were said to have been procured byway of E-way bill. If the Assessee had made purchases on E- way Bill the movement of goods cannot be doubted and thus the purchases to that extent cannot be treated as non genuine. Similarly, during the AY 2020-21 the assessee purchased cement worth Rs.77,43.750/- from RK & Company & RR Associates by E-way bill which shows that the assessee procured cement from these parties and to that extent cannot be treated as non genuine. Therefore, we are of the view that wherever the assessee had procured the materials by way of Eway bill such materials cannot be treated as non genuine and the materials procured other than E- way bill for these two assessment years can he considered as unproved purchases and certain percentage of profit element should be considered for the purpose of the addition since there is no dispute that the sales were already considered for taxation.

In the result, the appeal of the assessee is allowed.